Employer Health Plan Expenses Climb, and Relief Appears Limited

Nearly half of large employers have raised what workers must contribute to health insurance, a move aimed at offsetting higher premiums.

Rising medical costs are not only a burden for people who buy insurance on their own. Employers and their workers have also felt the squeeze this year, and additional increases are expected in 2027 plans, deepening worries about affordability as the midterm elections approach.

Surveys indicate that healthcare expenses, along with affordability more broadly, rank among the top concerns for likely voters. Much of the attention has centered on higher costs and falling enrollment in Affordable Care Act plans, which cover roughly 19 million people who purchase their own insurance. But job-based coverage is also adding financial strain for more than 150 million Americans insured through their employers.

One of the biggest changes this year came in worker contributions. According to a broad annual survey from KFF, a health policy nonprofit that includes KFF Health News, employees are paying an average of 9% more, or $7,471 a year, for family coverage. That follows a 7.6% increase from the prior year.

Employers also saw their costs rise, with the average family premium increasing 5% to $28,303, the survey found.

In response to that jump, which followed a 6% rise the year before, 44% of large employers with at least 200 workers said they increased what employees had to pay for coverage.

“When we start to see higher use or higher prices, there are only a limited number of things employers can do” to slow premium growth, said Matthew Rae, associate director of the Program on the Health Care Marketplace at KFF.

Employers also reported using other strategies over the past year to control spending, including raising deductibles, switching insurers, requiring preapproval for some services, or narrowing the list of available providers, according to the KFF report.

Workers’ pay rose an average of 3.7% this year, the survey found, while inflation ran at 2.7%.

Employees at small companies with fewer than 200 workers paid more for healthcare than those at larger firms.

For example, large companies had an average annual deductible of $1,772 for an individual worker, while small employers averaged $2,624.

Still, the share of total premium costs paid by workers across all companies edged up only slightly from the year before, reaching 27% for family coverage and 18% for individual coverage, with employers covering the rest.

What is pushing costs higher

Other groups have also issued projections for what employers may face in the coming year.

Consulting firm AON, for example, forecast that employer costs could rise 9.5% next year, marking a fourth straight year of steep increases. Marsh, another consulting firm, estimated an 8.2% jump, the biggest increase since 2003. The reports say costs are climbing for several reasons, including greater use of medical services, surging prescription drug prices, and rapidly rising hospital charges.

Artificial intelligence is also helping drive costs higher, according to other reports, including one from the Business Group on Health, an organization of self-insured employers. That report said hospital systems and other providers are using the technology to maximize billing for insurers and patients.

The business group projected a median premium increase of 9.2% next year, though employers could trim that by changing benefits.

Until recently, employers bore most of the rising costs, “but that’s starting to change a bit,” said Jim Winkler, the group’s chief strategy officer. “When open enrollment starts, most people will see their out-of-paycheck costs and probably their out-of-pocket costs going up.”

The group says employers should take additional steps to slow future increases, Winkler said. One option is to offer lower copayments for some providers based on price or quality, similar to tiered networks, a tactic employers and insurers have tried before but that only 4% of companies kept, according to the KFF survey. “What’s old is new again,” Winkler said, adding that the approach may work better now because apps make it easier for consumers to identify providers with the lowest copayments, which would be set by an employer or insurer.

Elizabeth Mitchell, president and CEO of the employer group Purchaser Business Group on Health, said the broader healthcare industry has largely been left out of the cost discussion, even though hospitals, drugmakers, and insurers all play a role.

She asked why employers are the ones being pressed to explain what they are doing about rising costs. “The industry is doing absolutely nothing to control costs, as evidenced by the relentless growth in costs,” she said.

Some businesses are using new pricing information required under federal rules to negotiate directly with hospitals and other providers, while others are investing more in primary care.

Mitchell and others say Congress should also act. Health policy researchers at Georgetown University, for example, have proposed capping annual deductibles, setting limits on hospital prices, and extending Medicare-negotiated drug prices to the private market.

Holding the line on spending

Not every employer saw costs rise this year.

One example is Phifer Inc., a Tuscaloosa, Alabama-based company that makes insect screens and precision woven products such as outdoor furniture fabric. The company’s healthcare costs held steady this year, likely because it has focused in recent years on providing zero-cost primary care through on-site clinics and direct contracts with doctors’ offices, said Russell DuBose, vice president of human resources.

Only 7% of companies in the KFF survey said they had an on-site clinic, though 24% reported having one on-site or nearby.

DuBose said workers can get in quickly to see a primary care doctor, which can help both prevent illness and catch problems early. The company also contracts directly with specialists.

“We steer plan members to the best providers that we can find,” DuBose said. “When we do that, we’re paying a more reasonable price.”

Like many employers, the company is self-insured, meaning it pays claims itself and buys stop-loss insurance to cover extremely high bills. DuBose said that coverage has also become more expensive.

He regularly hears from other employers who want to know how his company manages costs. More than in recent years, he said, businesses are uneasy about what rising expenses could mean.

“The worry is ‘Could the rising cost of healthcare be the next job killer?’” he said.

Among the other findings in the annual KFF report:

• Twenty-nine percent of all companies surveyed said covering GLP-1s, a new class of weight-loss drug, had a “significant” effect on drug spending.

• Many companies — about 29% of large employers — said they had trouble getting information about what their plans paid for care or comparing prices among providers.

• About 9% of companies with 50 or more employees purchase prescription drugs from outside the U.S. to reduce costs.